Multiple choice…………….So Somolend is in trouble & their CEO/Founder was essentially left no choice but to head for the exit, because:

a) The Ohio Securities Commission (much like the Ohio Highway Patrol does) came at her with an iron fist in order to make an example of her.

b) She helped them in that quest by her exhibits of irrational exuberance regarding future business, future company valuations, not to mention her “appeal to greed” speeches.

c) She consistently exhibited a disregard (or a liberal interpretation, if you prefer) for the concept of “accuracy” when it came to numbers. I guess accuracy does matter, imagine that.

d) Because she spoke at the Lendit Conference & Peter turned her in after the audience was offended by her stratospheric projections? (nah, I don’t buy that either, since those talks usually go over well with that group…………..just like they go over well with college sororities )

Dan, You may like to joke about this but I think the SoMoLend allegations are serious. Here is my understanding of the main issues. It is also important to point out that these are allegations and nothing has been decided.
1. Many entrepreneurs have an irrational exuberance in their projections of success, that is not committing fraud unless the Ohio Securities Commission can prove she didn’t believe the numbers – a tough bar to cross.
2. She violated the ban on General Solicitation in promoting her company to investors. This should be pretty clear cut, but I would be surprised if it is true given Klein’s intimate knowledge of the law here.
3. She lacked the proper licenses required to sell loans on her site. I have no idea of the law here or what happened so can provide no comment.

When it comes to online small business lending we are basically back in 2008 when compared with p2p lending. You may remember back then that both Lending Club and Prosper were deemed to be illegally selling securities without the proper licenses. Both companies survived intact.

We also know that Ohio is one of the most unfriendly places for investors in this industry – neither Lending Club or Prosper operate there. Klein probably couldn’t have chosen a less friendly state to launch SoMoLend.

I am not going to be passing judgment on these allegations until after the ruling in October. But I will remain hopeful that whatever happens it won’t set back p2p lending or online lending as a whole.

Oh, I don’t believe that they can prove she committed “fraud” either & I made no suggestions that they would. I’m not passing judgement on anything. But it is pretty much beyond contention that she did throw some wild numbers around that were far removed from fact & she did say some questionable things for whatever reason. I don’t believe the company is denying she committed those acts.

The only thing that is within contention is whether there was the intent to defraud. If there was no intent, then it must logically follow that she was either unaware that the incorrect numbers she kept spewing were incorrect………………….or that she was aware they were incorrect but didn’t think it important enough to stop spewing it. So it’s carelessness & incompetence or a highly objectionable disregard for accuracy.

Apparently, the state of Ohio must have little tolerance for people who take liberties with numbers. If p2p becomes a trillion dollar business some day & you achieve the success that I expect you will in that scenario,………….you might think about giving that state a wide berth. Don’t even do stopovers there man. Hey, better safe than sorry. I was once detained together with 2 family members under armed guard on a stopover in New Delhi for 2 hours inside a un-airconditioned plane. No, I was not suspected of terrorism or inflating numbers.

What should be news is the lack of high yield notes available on Lending Club. It is clear that there has been a large movement of cash into LC. Currently available notes fluctuate between 40-110. At one point, I calculated that if you had 600k, you could buy up every single note that was currently up for funding. When I started with LC a year ago there were usually about 500 notes available for funding. This problem seems to have started about a month ago. I am having to invest in B and C notes just to keep my money invested, hurting my ROI which is about 17% according to my calculations and 21% according to LC’s.